Tax credits blamed for lower revenues

By Sean Hao
Advertiser Staff Writer

Tax credits for the technology, hotel and home-building industries have accounted for an estimated $50 million to $60 million from state coffers so far this fiscal year, a budget advisory panel reported this week.

At the same time administration and legislative officials are trying to fill a $58 million hole in the current state budget. Coincidence? Not according to the Council on Revenues, which told lawmakers this week to look to tax credits and not the economy for lower-than-expected tax collections. The council this week cut its estimate for tax revenues growth for fiscal 2003, which ends June 30.

The adjustment has forced state decision-makers to consider raising taxes, making deeper budget cuts and tapping special funds to balance the budget.

Yesterday, the chairman of the Council on Revenues said the state would not be in such a position were it not for a series of business-tax incentives created in recent years with the aim of stimulating the economy.

Michael Sklarz pointed out that collections through February from general excise and use taxes — the state's largest revenue source and a broad indicator of economic activity — were $1.2 billion. That's 9 percent ahead of last year's collections and 8.1 percent above collections through February 2001.

"That tells us that the economy has been pretty much on track," he said. "It's a pretty decent economy." The reason the council revised its estimates downward were because of the tax credits, he said.

Sklarz said the council had previously estimated that the technology investment tax credit Act 221, the hotel and residential construction and remodeling tax credits, as well as others would cost the state about $30 million this fiscal year.

"There were estimates made in terms of the magnitudes of these credits and it turns out they were low," Sklarz said.

Based on recently released tax return figures for 2001, which showed more than expected activity under Act 221, the council estimates that tax credits will cost the state about $80 million in revenues through June.

The tax credits in question were created to support various state industries in hopes that would ultimately create more jobs and additional tax revenues. However, the state does not have a handle on whether any such benefits were created and whether they offset the claimed credits.

That is something state officials are trying to address, said House Majority Leader Scott Saiki, D-22nd (McCully, Pawa'a), and why legislators plan to conduct cost-benefit analysis before passing any new tax credits, he said.

Despite difficulties balancing this year's budget, lawmakers continue to debate creating or extending a host of tax credits including those for hotel and commercial construction, job creation, and economically depressed communities.

"The House approach first is to extend existing credits for a limited period of time and not create any new credits," Saiki said. "Obviously there is an opportunity for new tax credits, but they may be very difficult to create in the end."